How to Calculate Your True Hourly Rate as a UK Freelancer

Plenty of freelancers price their work by picking a number that sounds reasonable, or by matching what a competitor charges, without ever working out what they actually need to earn. This guide walks through a simple formula for finding your true hourly rate: the number that actually covers your tax, expenses, and all the unpaid hours that come with running your own business. It sits in our Tax category, alongside our other self-employed calculators.

Why your gross rate is misleading

A freelancer quoting £50 an hour might assume that working full time brings in roughly £100,000 a year, based on a standard 2,000-hour working year. In reality, almost nobody freelancing full time bills anywhere near that many hours, and a large chunk of whatever is billed disappears to tax, National Insurance and business costs before it becomes take-home pay. Your quoted rate and your true rate, what you actually keep per hour worked, including unbilled time, are usually very different numbers.

This gap catches out a lot of people moving from employment into freelancing for the first time. An employed salary already has employer National Insurance, a pension contribution, paid holiday, sick pay, training, and often equipment all covered on top of the headline number. A freelancer has to build the cost of all of that into their own rate, since none of it is provided for free anymore. Working out a true rate properly, rather than guessing, is the only reliable way to know whether a given piece of work is actually worth taking on.

Subtracting tax and National Insurance

As a self-employed sole trader, you pay Income Tax and Class 4 National Insurance on your profit, the amount left after business expenses. Our self-employed tax guide covers this in full, but the short version is that a meaningful share of your billed income, often somewhere between 15% and 30% depending on how much you earn, goes to HMRC rather than into your pocket. Any true rate calculation has to start from what you need to take home, then work backwards to what you need to earn before tax.

Subtracting business expenses

Software subscriptions, insurance, equipment, a portion of home working costs, and professional fees all come out of your revenue before you get to keep any of it as profit. These vary a lot by profession, from a few hundred pounds a year for a low-overhead freelance writer to several thousand for someone who needs specialist equipment or software licences. Whatever your figure is, it needs adding to your income target before you calculate a rate, since it is money you need to bill for but never get to keep.

Subtracting unbilled hours

This is the step most freelancers skip, and it is usually the biggest gap between the quoted rate and the true rate. A full year of work is roughly 46 to 48 working weeks once holiday and public holidays are accounted for, at perhaps 5 days a week. But not every one of those days is spent on billable client work: time also goes on admin, invoicing, finding new clients, proposals, and simply running the business. A common rule of thumb is that somewhere around 60% to 75% of working time ends up billable for an established freelancer, and often less for someone still building their client base.

It also pays to remember that holidays and sick days are unpaid by default for a freelancer. If you want two weeks off in the summer and expect to lose a few days a year to illness, that time needs to be planned into your working weeks upfront rather than discovered as a shortfall in December. Building this buffer into your billable hours calculation from the start avoids the common trap of pricing as though every single week of the year will be a full, healthy, uninterrupted working week.

A simple formula for your true rate

Putting it together, a workable formula is:

Required hourly rate = (Target net income + Income Tax + Class 4 NI + Annual business expenses) ÷ Billable hours per year

The tricky part is that Income Tax and Class 4 NI depend on your profit, which depends on your rate, so working it out by hand means a bit of trial and error. Our self-employed tax calculator and take-home pay calculator can help you check the tax side of this quickly for any profit figure you are testing.

Worked example: needing £45,000 net

Take a freelancer who wants £45,000 in actual take-home pay for the year, after tax, and estimates £3,000 in annual business expenses.

To net £45,000 after Income Tax and Class 4 National Insurance, this freelancer needs a profit of around £58,100, made up of roughly £10,700 in Income Tax and £2,400 in Class 4 NI on top of the £45,000 they keep. Adding the £3,000 of expenses on top, their required annual revenue, the total they need to bill clients, comes to around £61,100.

Now for the working pattern. Assume roughly 46 working weeks a year at 5 days a week, giving 230 working days, of which around 70% end up billable at 6 hours a day, working out at about 966 billable hours across the year.

Dividing £61,084 by 966 billable hours gives a required rate of around £63 an hour. Interestingly, this is higher than the roughly £59,400 gross salary an equivalent employee would need to net the same £45,000, even though self-employed Class 4 NI rates are lower than employee National Insurance. The gap comes entirely from business expenses and the reality that a large share of a freelancer's working time is never billable at all, both costs an employer would otherwise absorb.

Try running your own numbers through our self-employed tax calculator, and check how VAT would affect your pricing once you approach the registration threshold with our VAT calculator.

It is worth revisiting this calculation at least once a year, since your expenses, tax position, and the amount of admin time your business needs all tend to shift as you grow. A rate that worked perfectly in your first year of freelancing can quietly fall behind once your workload, costs, or tax band changes, so treat your true rate as something to check regularly rather than a figure you set once and forget.

Frequently asked questions